69151325.jpgBusiness is booming for Foxconn, the controversial hi-tech contract manufacturer that supplies Apple.

It plans to expand its facilities in China by opening a high-tech manufacturing facility in south China’s island province of Hainan. The Taiwanese firm’s existing facilities in China are all on the mainland in cities such as Shenzhen and Chengdu.

It also said it would improve conditions its Chinese factories, which assemble iPads and iPhones for Apple as well as working for many other western electronics firms. The firm has come under repeated fire for exploiting its Chinese workers — see this earlier post.

Chairman Terry Gou (pictured) said Foxconn plans to eliminate illegal overtime and raise pay of its workers, although I suspect the pay rise — and the out-of-the-way location for its new plant — have a lot to do with China’s tightening labor market for skilled workers rather than a sudden interest for the welfare of his workers.

Needless to say, Mr Gou has no doubt realised that the western media’s frequent exposés of bad working conditions and dubious employment practices are bad for business.

The latest twist in this long-running saga was exposed yesterday by the UK’s Guardian newspaper. It revealed that “tens of thousands” of students were sent against their will to work as interns at Foxconn plants.

A Chinese activist group claims that students are forced into internships of between three and six months, during which 10-hour days and seven-day weeks are not unusual.

Of course, the only reason that western media continue to pursue this issue is because Foxconn makes iPhones and iPads, rather than boring industrial machinery.

Tim Cook, Apple’s CEO, went to China last week and one of the topics on his agenda was undoubtedly how to improve the conditions of the workers who assemble Apple products.

Apple has also belatedly woken up to the bad publicity created by this issue after dragging its feet for a long time. Its not difficult to see why.

EngagingChina remember when computers were not only designed in Silicon Valley but made there as well. Steep labor costs made them expensive and so early computers were aimed at businesses rather than consumers.

Twenty-five years on, computer manufacturing is outsourced to China and other Asian countries with much lower labor costs. The shift has meant that products that once would have bee limited to a few are now priced to appeal to a much broader consumer market.

The most vivid demonstration of this trend is, of course, Apple. It has sold more than 300m iPhone, iPods and iPhones over the past few years — more than the total number of Macintosh omputers it has sold in the past twenty five years.

So, if Apple were to try to make the iPad in Silicon Valley today, it would probably end up costing three or four times the price of a Made-in-China iPad.

How many Apple enthusiasts would be prepared to pay four times as much for their iPhone or iPad just so they could sleep more soundly at night, knowing that the workers who assembled did so enjoyed the full protection of Californian labor laws?

More to the point, how many western consumers would be prepared to pay a similar premium to ensure their LCD TVs, household appliances, furniture and a long etcetera of capital and consumer goods were made by western workers?

The answer is very few, which is why these goods are now almost entirely manufactured in China and western rivals who have tried to keep manufacturing in high-cost countries have had to throw in the towel.

Principles and good intentions have a price.

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